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Tuesday, November 25, 2008

I am amazed at the level of bailouts/workouts/handouts/ that we are seeing. I was most amazed this morning when the market seemed to love the latest government injection or what ever you would like to term it. The last thing that we need is more consumer credit. How can anyone think that we are not going to create inflation and most likely raging inflation. Yes we got caught in a downward spiral of prices and yes it has become very evident that the markets are much more scared of DEFLATION than they are INFLATION. But that does not mean that INFLATION is not going to be a problem.

It seems like every pundit in the world is on television declaring that we are out of the woods and THE BOTTOM IS IN. Is the bottom in because we were irrational to the downside, or because we have seen confidence totally restored due to the announcement of the new economic team, or is it because we got such good home price numbers today that we improvement must be on the horizon. My point is simply that I cannot see the justification for this rally lasting very long. I will have to wait on my invitation to appear on one of the major business shows because I believe that we are in for more pain. Every one of the so-called experts that appears on a mainstream media show is asked the question "How much stimulus (or whatever the operative word is) will it take to really be effective?" BIG is always the response. The truth is no one knows. Our country is not patient enough to adequately answer the question. How dare we run the risk of a bankruptcy (once thought to be a part of the normal economic cycle). We are in effect putting the patient to sleep before we ask them where it hurts so we can properly diagnose the problem. This government has thrown money at the problem day in and day out and has no clear direction. How much is enough in terms of the money that we will borrow to fix these problems? Apparently there is no amount too big to consider financing.

Think of the credit crisis in terms of a river levee. As the river rises the top of the levee holds and the land on the other side of the levee remains dry. Water continues to rise, and puts pressure on the levee. A little water leaks through but instead of rising over the levee---it just continues to back up on the opposite side. More water is added but it is still relatively dry on the other side of the levee. At some point enough water backs up and blows through the levee---AND THE OTHER SIDE IS FLOODED. SO IT IS WITH THIS CREDIT CRISIS AND INFLATION. The government is adding more water to the river every minute. GET A BOAT!!!

Last night I mentioned that we must see some return to normalcy before I would believe in the rally. Specifically, I noted that we must have some kind of disconnect between everything (commodities and equities) going up and down at the same time--each and every day. We saw a little disconnect today with natural gas getting hammered while the equities held their own. I remain unimpressed as the credit markets are still not anywhere near to normal and I would much rather see credit for businesses become more readily available than I would give three cheers for the mortgage rates declining. Larry Kudlow is on CNBC cheering everything that he hears---he seems to like Paulsons latest plan and all of the new economic team. One of the key things that Paulson said is that this latest phase of the plan is that it is ESSENTIAL AND IT IS SPECIFICALLY FOR THE CONSUMER. MORE BUMS SPORTING PLASTIC---JUST THE WAY WE GOT INTO THIS MESS!!! AND THE GREATEST PART---PAULSON SAID HE CAN EXPAND IT TO OTHER TYPES OF DEBT----JUST WHAT WE NEED!!

Those of you that believe we are going to see continued deflation might well be getting your terms confused. You may be confusing deflation with simple unemployment. The misery index a combination of the inflation rate and unemployment. Could your deflation ideas wind up being a major spike in the misery index. I would argue that it is. Did anyone see Bloomberg's interview with Mark Faber? Not only did he say buy gold---he said buy the metal and don't trust any ETF. I will admit that his statements were shocking, but I cannot find a weakness in his ideas. Listen to Faber and then make your case for extended deflation. Our comment section will hold all of your ideas---we are waiting.

FLR continues to work well, and I am getting my butt kicked with SDS. I really expect us to turn right around and test the lows so I am hanging on to my SDS. If someone can offer a real reason (other than a normal rally in a bear market) that this market should go up I will certainly consider selling my SDS---but as of now I have not heard one. Feel free to leave it in the comments section.

Remember that Kevin Kerr will be our guest on STOCK SHOTZ on Friday. Videos will be posted on www.stockshotz.tv as well as the blogsite www.stockshotz.blogspot.comRemember to email your questions to webmaster@stockshotz.tv if you would like for us to ask Kevin a question of yours.

1 comments:

captain caveman
said...

The rally has started and you are still buying SDS? I guess you are buying gold during this time of deflation. It is deflation, oil prices are not going to sustain $50. Most likely they are headed much lower, how can you even talk about inflation. We have seen the greatest destruction of wealth in modern times. Deflation is here and it will not be controlled by any action.